On April 12, 2019, the Fifth District Court of Appeals issued its decision in RWI Construction v. Comerica Bank (available here). The trial court granted Comerica Bank’s request for a temporary injunction enjoining defendants from dissipating certain funds that had been deposited into a bank account. The court of appeals affirmed in part and reversed in part.
The general
rule is as follows:
“[A] trial court is forbidden to issue a preliminary injunction freezing a defendant’s assets simply to assure future satisfaction of a subsequent judgment[.]” See also De Beers Consol. Mines v. United States, 325 U.S. 212, 222-23 (1945) (plaintiff may not “apply to the chancellor for a so-called injunction sequestrating his opponent’s assets pending recovery and satisfaction of a judgment in such a law action. No relief of this character has been thought justified in the long history of equity jurisprudence.”).
But this “general rule would not control where there is a logical and justifiable connection between the claims alleged and the acts sought to be enjoined, or where the plaintiff claims a specific contractual or equitable interest in the assets it seeks to freeze.”
Here, $800,000 of the funds at issue were collateral for the loan at issue in the case. Rather than pay those funds over to Comerica Bank as required upon their receipt, they were transferred from defendant to its owner (Lone Star). “Accordingly, the evidence presented by Comerica Bank traced collateral for the loan to Lone Star, and those funds are both logically and justifiably connected to Comerica Bank’s breach of contract claim and the relief it seeks in this case. Thus, an exception to the general rule prohibiting the freezing of assets pre-judgment exists as to the $800,000 transferred to Lone Star.”
(Another exception to the general rule against freezing assets is where the assets at issue are the subject of a security interest in the plaintiff’s favor.)
With respect to
freezing the $800,000 in collateral, the court held that the plaintiff need not
demonstrate that the defendant was insolvent. An “unwillingness to pay is
just as significant, and perhaps more so, as an inability to pay.”
Because the
remainder of the funds were the product of a general capital call on the
partners of Lone Star, an injunction could not issue as to those funds, as a
pretrial freeze of funds is not available to “assure their future availability
to satisfy a judgment based solely on concerns about [a defendant’s] general
future liquidity.”
